ARE YOU KIDDING ME????

Looks like April Fools came at the end of the month this year. Today's rally in the market is not a green light to buy more puts. In two days, the market erased Tuesday's move down. That price action is bullish, not bearish. I've checked with just about every professional trader that I know to see if I was missing something in my analysis. They have all agreed that they feel the market should be going down. Watch the the stop loss area at the previous high. This market might take it out.

GET READY BEARS!

It looks like we finally got confirmation for a pull back in the market. All three indexes closed very near the lows of the day. The VIX closed right at the high of the day after a 5 point move up! The DOW, S&P 500, and Nasdaq all closed below their 10 day MA for the first time in a long time (early February). You can probably buy puts on just about anything that was overextended during this last move up. Some of these trades will be considered "counter trend" trades, but they can be managed easily with stops above yesterday's (Monday's) high. This creates a very nice reward to risk for many trades. I warned you months ago that the Greece financial crisis was not over...and that there would be more to come. I will make a bold prediction again...there will be more to come! The initial targets for this correction would be about 1150 on the S&P 500, 10740 on the DOW, and possibly 2330 on the Nasdaq. I didn't have time today to get into any put option trades on any specific stocks. I bought puts at the close on the SPY and the QQQQ (I didn't get filled on my DIA puts). I'll put a stop above Monday's high. If I get stopped out, then this sell off would be another false alarm. I'm prepared to get pretty aggressive tomorrow....especially if we gap up at all (or trade up at all) at the open. I'm pretty confident that we are moving lower...and I haven't been confident about much lately. If you haven't taken profits on your recent bullish positions, you better consider selling them soon. Portugal will be the big news tomorrow. It's stocks are getting annihilated in the early part of their trading day (yes, I am writing this at 2am my time). Keep an eye on the Gold stocks (GLD, GFI, GDX) particularly the GLD. This news could cause a spike in gold as everyone runs for cover. The dollar should move up and the Euro should move down. You can trade the dollar using the UUP and the Euro using the FXE. I'd be okay with put options on AAPL if you placed a stop above Monday's high. It could drop another $20 before it finds support (at possibly the .382 Fibonacci retracement). Just about all the financial sector should continue to drop as traders try to figure out if the European crisis will affect the U.S. banks. We already know that Goldman Sachs will be fine because they are probably short on all the European countries...that was a joke in case you were wondering. GENZ still looks good for a put option trade.

NO CONFIRMATION....YET.

The market keeps showing signs of a possible top, but it hasn't yet confirmed any of those signals. An area to watch is 1230 on the S&P 500. This is the location of the .618 Fibonacci retracement of the 2007-2008 move down. There is also some previous support/resistance in this area from the summer of 2006 (support) and the summer/fall of 2005 (resistance). Many traders are watching this 1230 area as resistance. I would be cautious entering bearish trades without confirmation. The bears are still getting crushed as this market keeps inching its way upward. Many of the trades over the last week helped me dig out of a drawdown from the previous two months. Some of the winners from last week's recommendations include APA, EP, HAL, VLO, IGT, GDX, GFI, KBH, TOL, DHI, RST, ans VCI. Many of the other picks either didn't get confirmation (close above their 10 day MA), or they are just now getting that confirmation. ALTR and CREE recently gave confirmation. APC, NLR, KOG, NUE, MT, X, VRX, XBI, MYL, FCX, and T are very close to reaching the conformation. EBAY, CELG, and TEVA should be scratched off the list. They never gave confirmation and they are now below their 50 day MA. GENZ was the lone bearish pick (put option). It gave confirmation for the put option today as it closed below its 10 day MA. I'm still managing some of these trades, so I will try to have more picks later in the week. For those that have realized some of these gains, make sure you take some profits off the table. EP, HAL, KBH, TOL, and DHI made big moves. You need to cash in some of those gains. Don't get too greedy.

THE TOP?

There many reasons to believe that a top was reached yesterday. AAPL was a good example. I don't think I've ever seen the stock this far away from its 50 day MA. Watch to see if the market gaps down today and closes near the low of the day. If this happens, we might expect there to be continued selling. See if the VIX closes at or near its high of the day. Last week the VIX spiked up on the Goldman Sachs news, but finished the day well off the intraday high. If it closes at the high, it will signal that the "level of freaking out" is strong...and possibly increasing. If it looks like the market will close on its lows, you can buy a put option on the SPY, DIA, or QQQQ and play the expected move down. Many of the bullish recommendations I gave the other night have not (or did not) get confirmation. The confirmation that I normally look for is a close above (or below on bearish trades) its 10 day exponential moving average. If you are in call option trades, make sure you have stops in place. If you don't know how to calculate a specific stop, you can try using 50% of your purchase price. If you bought the option for $4, you could stop yourself out if it reaches $2. Don't panic and jump out of trades that are working. I've called possible tops before over the last month. We still don't have much confirmation yet that this market is on its way down.

STOCK PICKS

If the uptrend continues, here are some patterns that I like: APA (if it can close above $108), APC, EP, NLR, HAL, VLO (if it can get back above its 10 day MA), KOG, NUE (if it can hold here and get back above its 10 day MA), same with MT, same with X, IGT (still looks good for the longer term play, GDX and GFI with some confirmation. I really like EBAY if it can hold here and get back above its 10 day MA. ALTR, CREE, KBH, TOL, and DHI if it can get back above its 50 day MA. Try RST, VRX (with some confirmation), XBI (with conformation), CELG with conformation, GENZ - Put option trade. ALXN, MYL and TEVA (with confirmation), FCX with confirmation, NUE with confirmation, and T. I still like VCI and it finally made a decent move up today. Don't try to go out and trade all these. You could choose a few.

GOLDMAN SACHS MIGHT NOT BRING DOWN THE MARKET

I mentioned on Friday that I wanted to see how the market closed that session. Although the market was down, it closed off its lows. The VIX also closed significantly off its highs on Friday. The buyers came back today. The market still seems like it wants to go up. Every sell off usually needs a catalyst...or two. This market might need more than one. With all the earnings coming out over the next two weeks, there could be some news that could help the market sell off. Try to trade the trend as much as possible. If you see nice bullish trending stocks with ABC pull backs, look to get it. IGT has pulled back a bit and might provide a second chance to get in. This was a longer term pattern using the July options. T rebounded today and still looks good. VCI looks like it could move up any day now. I'm still trying to figure out the significance of Friday's move. I'll be watching the price action carefully. Look to see if institutional selling is taking place on good news. If the institutional investors are trying to dump stock, they might try to create an illusion that the buyers are coming back and the stocks will continue to go up. They will try to take advantage of good news by selling heavy into it. I'll point it out if I see anything that looks out of the ordinary.

VIX IS SPIKING ON GOLDMAN SACHS NEWS

Yes, this is the spike in the VIX that we wanted to see. Every sell off in the market needs a catalyst. So far, this appears to be that catalyst. I'm glad that I took profits off the table on my MS trade. It will be interesting to see how the market closes today. You will want to see if the market closes on the lows of the session. You will also want to see if the VIX closes today at or near the high that it has reached on this news.

SUCCESS STORY

Jerry:

Yesterday was a pretty good day for me. I own just 3 options and have a little less than $25,000 of my own money invested in the market at this time. I think we are about to tank so I'm keeping a low profile not wanting too much exposure when it hits.

My three options: CREE, CRM and BCSI yesterday made me $15,300 or 61% in ONE DAY. All three gapped higher on heavy trading.

IT DON'T GET ANY BETTER THAN THIS! Dry powder and waiting until we see the whites of their eyes.

Harley R.

SOMETHING BIG IS GOING TO HAPPEN...SOON!

I've been talking for weeks now about a top forming in the market. The thing about picking tops or picking bottoms is that you can never really perfectly predict when they will occur. We can recognize the symptoms and use that information to move to safety...or at least lighten up on our risk exposure. We currently have very low levels on the VIX, divergences in the major indicators, and more and more people telling us on T.V. and on financial websites that the market looks like it will continue to move upward. I remember experiencing such overly bullish sentiment during the internet bubble of 2000. In late 1999, the market was moving up at an unusually fast past. The Nasdaq basted through 3000, 4000, then 5000 in 4 months!!! Yes that's 4 months, not 4 years. 4 years would have still been incredible. We knew it couldn't keep up that pace, but there was no way to know exactly when the bubble would burst...only that it was going to burst. The market was overbought for months before it finally dropped dramatically. Many of the financial "experts" were saying that we could sustain that growth because this was a new age...the age of computers and the internet. It was a new economy that wouldn't operate according to "old" rules. That internet companies could trade at $300 a share and have no earnings because they would eventually have huge earnings. People who knew nothing about trading were dumping millions of dollars into call options. Why not? The market was going straight up and everyone was telling them that it would continue to go straight up. They were the "experts". Why would anyone doubt them? We are hearing similar things today. Most of this year long rally has been due to the government dumping billions of dollars into bailouts and stimulus. I've heard the "experts" say that companies are strong and that everything is almost back to normal. Many companies have had record earnings and outstanding growth. I can't help but ask the question "Is this real?". Borrowing a million dollars doesn't make me a millionaire. Many of you might be using the endless bullish rhetoric as a reason to confidently buy stocks and buy call options. I've learned over the years that when I feel most confident to buy is the time that I need to sell....and visa versa. I picked the bottom in 2009 within about two days. The timing was lucky, but the symptoms were unmistakable. It was only going to be a matter of time before the markets would rally. It was the complete opposite of 2010. Maybe I'll get lucky again and the top will be reached within two days of this blog posting. Maybe it will be two months. All I know is that it will likely happen...and maybe soon. The put/call ratio is currently the lowest in ten years. That means that traders are buying record amounts of calls over puts. Ten years ago....wasn't that 2000? Wasn't that the internet bubble? Just a thought.

I've posted some bullish trades over the last week because I liked the patterns. I don't know if this "melt up" will continue for a while, so I might as well trade the current trend. I don't recommend trading with large amounts of your trading capital. Save it. You might just have a big opportunity to make some easy money on the way down. If you buy calls, use stops or limit the amount in the trade. Buy one or two contracts instead of ten. I thought we had reached a top in January of this year. I realize now in hindsight that the sentiment was not yet bullish enough for a big move down. I think is is now...or at least it is very close to getting big enough. Another 100 point move up, like we saw today, might just push that sentiment up far enough to snap. The market can sometimes be like a rubber band. Just when you think it has stretched far enough, it stretches a little further. However, when it finally reaches the peak of its stretch, it will snap back in the opposite direction with an even greater force. We'll see what happens. By the way, AMD and GOOG report earnings tomorrow and BAC and GE report on Friday.

BEWARE OF INTEL EARNINGS!

Just a word of caution before you run out and buy calls because Intel had a blowout earnings report. Intel often sells off despite reporting great earnings. Intel will probably gap up at the open tomorrow. If it does, watch to see what happens next. If it ends up selling off and closes near the lows of the day, look to buy puts on INTC and see if history repeats itself. If you can watch INTC at the close, you might be able to get into those puts right before the market closes. JPM reports before the market opens. YUM reports after the market closes. Both stocks look a bit overbought. Don't get sucked into chasing them here.

EARNINGS SEASON KICKS OFF WITH ALCOA

Earnings season has officially begun with the earnings report from Alcoa. The majority of the major companies report earnings starting around the second week in January, April, July, and October. This 3-4 week period is often referred to as "Earnings Season". Traditionally it is Alcoa (AA) that kicks it off. Alcoa's earnings report wasn't spectacular. It will be interesting to see how the market reacts to it tomorrow. If I were explaining the perfect conditions for a pull back, I would point to these current market conditions. The market is overbought, but the traders are overly complacent as reflected in the Volatility Index (VIX) which is near 15. The first big earnings report was not great. The DOW just closed above 11,000 and the S&P 500 is just 4 points away from 1200. These could all be reasons why the market pulls back a bit. However...this market has not been acting normal. This is why I am anxious to see how it trades tomorrow. I am staying with my recent bullish picks, but I will recommend taking some profits off the table. AT&T (T) and Continental Airlines (CAL) made big moves up after I recommended them last week. Walmart (WMT) broke a bit below the support area I was watching. I never got confirmation to get into that trade. If it can rebound and start to move up in the next day or two, I might recommend it again...but for now, let it go. If you have decent gains in T or CAL, you might want to consider selling some contracts to lock in some profits. I still think they can go higher (if the market wants to keep moving higher), but you never want to get too greedy...especially in this market environment. If AAPL or BIDU gap down tomorrow at the open, I might buy puts and place a stop above today's high. If they don't gap down, I'll wait to see how they close. If the market looks to be selling off and the VIX spikes up, I'll look to get in at the market close...again looking to place a stop above the most recent high. If they move higher tomorrow, I'll keep waiting...patiently.

SUCCESS STORY

I had your first class yesterday and made my first actual live trade today. I bought 10 contracts of the IGT July $20 call and I am ahead nearly $300 profit on a $1216. investment in one day. Annualized that is a pretty good start.

Thanks, Frank.

BUYERS ARE STILL OUT THERE

The market rebounded nicely from yesterday's pull back. I've been impressed with the strength of the buyers. They are still out there. I don't know how much longer they can keep it up. Alcoa reports earning on Monday and they will officially kick off Earnings Season. After Alcoa, there will be about a one week lull until the big earnings push begins. If the market doesn't sell off on Alcoa's earnings, I would expect it to move sideways to upward until the next Monday (April 19th) when 189 companies report their earnings. I just don't see how this market can rally on the earnings...even if they are better than expected. I think a lot of institutional investors will try to sell into any good news that comes out. If we do keep moving higher, I like the bullish pattern on T (AT&T). I also like CAL and WMT if they can get back above their 10 day MA in the next few days. Make sure you wait for some confirmation on those two. I might do a credit or debit spread on WMT since it tends to move more choppy and sideways. Another reason why I think we could move a bit higher over the next few days is the price action on the DOW Transportation Average. I've told you in the past that it can sometimes be a leading indicator for the market. It failed to reach a new high earlier in the week when the S&P 500 and the DOW were making new 52 week highs. I thought this was bearish and that it could signal the beginning of a pull back. Today the DOW Transportation Average closed a new 52 week high. This might mean the market could go a bit higher. Have a great weekend!

HOW BAD IS IT?

The sell off today didn't show any panic behind the move. The VIX barely moved up even with the market down almost 100 points. Gold was the big winner today. I told you about the expected move in gold last week. Since then it has made a nice move up. NEM has moved up almost $3 since my recommendation. Gold could definitely continue to move higher, but it's a riskier entry right here. The GLD has been up almost 5 days in a row. I'm still watching many of the picks from yesterday. AAPL and BIDU aren't yet ready for bearish trades. We'll need more motivated selling. VCI still looks very good for a bullish trade. If I don't see any panic in the selling, I'll be content to just wait for the pull back and look to get into more bullish positions.

SUCCESS STORY

Jerry, I must say I learned a ton and am trying to use it with my entrance & exit strategies, plus the use of the stop losses to lock in my gains after the stocks I pick start to go up.

I really can’t say I am reading the ABC patterns with perfection yet, but I am looking very intently at charts and paying attention to resistance & support levels. Plus trying to read a little more of the Elliott Wave pattern along with the stairsteps.

Good winners so far have been Herbalife & Lincoln National with profits locked in on your call of Newmont Mining.

John N.

SUCCESS STORY

Jerry:

One Day Double +:

Since I took your class and been trading now for one month I have had some pretty good success. Actually better now than at any time in my trading career. I've done what you ask of us - I've been keeping track of my winning and losing trades and have hit on just over 85% winners so far (32winners /6 losers for 38 total trades in less than 20 trading days).

Today I cashed in on my first "One Day Double" which actually at around 110% up for the day." (I've had 6 with 100% + gains so far) Last week Thursday, before Good Friday I purchased 25 contracts of CREE - June 19th Calls $80 strike price at $2.10 ($5,250). The stock then fell during the day so I purchased another 25 contracts at $1.95; same Calls, expiration and strike price for another $4,875.(I'm allocating up to $10,000 per option per stock or 5 stocks total)

Today, Monday CREE gapped up and closed at $4.80 or 135% from Thursdays close. I did what you suggested we do - at noon I sold half of my position and got my entire orginal $10,000 back plus a profit of close to $800. But, I'm still holding the other half open and they are valued at $11,000 tonight. That's a cool $11,800 profit in one day on a $10,000 investment. I quit keeping track of my virtual account - last I saw of it it was up over $48,000 this month using just $120,000 to trade with - I'm averaging less than that invested using my own money and doing pretty good….better than when I had over half million working in stocks.

For the record my 32 winning trades have netted me $44,600 so far in just one month. I keep this up and I will be able to buy a new set of golf clubs I can use to beat you with when you come up to Montana some day soon.

Thank You for all your wonderful training - couldn't have done it without you!

Harley R.

Billings, Montana

DIVERGENCE

There are several divergences that are developing in this market. We already know that the market is overbought, but know we are seeing clear divergences that could signal an upcoming pull back. Look at the RSI. It is above 70...a clear overbought condition...and there is a clear divergence as the RSI reached a lower high as the market hit a higher high. The MACD also shows a divergence, especially on the MACD histogram. We are also well above the 50 day MA. This doesn't necessarily mean that the market will drop in any big way. We could bounce around sideways as the market digests these latest gains. You can either look for some overbought or down trending stocks to buy puts, or wait for the pull back and look for more call option trades. BA broke below its 10 day MA on Monday and it might be a good candidate for an overbought stock. I do have a few bullish picks, even though I'm expecting a pull back in the market. These picks are a bit longer term in nature so even if we do pull back a bit, they should work out. The first one is VCI. I've got a short term profit target around $32. I also like IGT. The trend on the daily chart is down, although the stock is above its 50 day MA. I like the pattern on the weekly chart...a beautiful bullish ABC pattern with the 50 week MA trending upward. I'm looking at the July 20 calls. I'm using the 9/15/09 high as a target which could be near a 200% return. There is a leveraged buyout rumor on this stock and high institutional option buying. In other words, the institutional option buyers are expecting something big to happen in the future. This doesn't always mean they are right, but I'll assume they know more than I do about the stock. I probably won't use a stop since the option price is under $1.50. I'll look to sell half the position if the option doubles in price. This one may sound crazy, but I will look to buy puts on AAPL if it closes below its 10 day MA (maybe even a close below its 5 day MA). This trade would be riskier because it is a counter trend trade, but AAPL is very overbought and could have a $10 to $15 point move down if it starts to sell off. I would place a stop above the most recent high. I'll do the same thing with BIDU.

NEW PLANET - This was an April Fool's joke if you didn't already get it.

You've got to see this one! The Hubble telescope picked this one up a few weeks ago.

http://www.theforce.net/swtc/Pix/books/weg/dstc3.gif